Market Drivers for June 4, 2013
RBA keeps rates unchanged but bias remains accommodative
USD/JPY above 100.00 as Nikkei rallies
Nikkei 2.05% Europe 0.63%
Oil $92.88/bbl
Gold $1405/oz

Europe and Asia:
AUD RBA Rate Decision
AUD Current Account Balance -8.5B vs. -8.9B
JPY Labor Cash Earnings 0.3% vs. 0.6%
EUR Euro-Zone PPI -0.6% vs. -0.2%
GBP PMI Construction 50.8 vs. 49.7

North America:
USD Trade Balance 8:30

As expected the RBA kept rates on hold at 2.75% but its dovish stance put pressure on AUD/US throughout Asian and early European trading sending the pair below 96.50 as the night progressed. The RBA remained stationary for now, but in its monthly policy statement Glenn Stevens noted that, “At today’s meeting the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target. It decided that the stance of monetary policy remained appropriate for the time being. The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.”

Furthermore, despite the significant depreciation in the Australian dollar the RBA continued to jawbone the exchange rate lower, stating,”The exchange rate has depreciated since the previous Board meeting, although, as the Board has noted for some time, it remains high considering the decline in export prices that has taken place over the past year and a half.”

The overall tone of the RBA statement put pressure on the Aussie as it suggested that the central remains open to further rate cuts and furthermore continues to pressure the exchange rate lower despite its already substantial decline. Tonight, the market will get a glimpse of the Q1 GDP data and if the news disappoints, the Aussie could be pressured back below the .9600 level as currency traders begin to price in the prospect of yet another rate cut. In the meantime, the unit is likely to remain a laggard especially against the euro which was firmer in overnight trade.

The EUR/USD held above the 1.3050 level and rallied towards 1.3080 in quiet European dealing boosted by a better than expected reduction in Spanish unemployment change. Spain’s unemployment declined by -98.K versus -50.2K eyed. This was the sharpest decline in unemployment in nearly a year and suggested that Europe’s number four economy may be finally turning the corner.

The EUR/USD continues to trade well and if the pair could clear the 1.3100 level in North American trade today it could open the way for a run towards the 1.3250 as the combination of better EZ fundamentals and the growing market belief that the Fed is unlikely to taper anytime soon, could boost the pair higher.

Lastly USD/JPY took its que from the equity market and rose through the 100.00 level in Asian session trade as Nikkei gained 2%. The US calendar today is very light with only the IBD Economic Optimism survey on the docket, which is unlikely to have much of an impact on trade. However if the number do improve as expected USD/JPY will likely keep the 100.00 handle as it recuperates from yesterday’s profit taking dive.

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